Undefined workflows damage performance

June 18, 2014

At this week’s IACCM Europe conference, approximately two-thirds of the participants acknowledged that their company does not have a consistent workflow or process for contracting. In many cases there is no formal definition; in others there are wide variations between countries or operating units.

Since many of the companies represented are large, sophisticated organizations, this finding is surprising. It reflects continued lack of appreciation by top management of the impact on performance of good (or poor) contracting processes. Of course, this lack of process inevitably also means a lack of data, so there is no perceived reason to change or improve.

One major consequence of undefined workflow is a high level of internal contention. Delegates noted the extent to which lack of clear process acts to undermine a sense of responsibility and creates a tendency to allocate blame. This is evident at many levels – for example why contracting takes so long, why negotiations are hard to resolve, why implementation of contracts is poor, why obligations are not met. Everything is someone else’s fault and no one takes ownership to drive improvements.

When asked whether there is an ideal point of ownership for contracting, conference participants had mixed views. Current reporting lines are quite varied – Legal, Finance, Operations, Procurement. A significant number report to the head of a business unit and some consolidated groups have a direct line to the CEO. Clearly, more senior reporting lines reflect a bigger role in forming and implementing commercial policy and strategy; others are constrained to perform a tactical operational role supporting specific contracts.

Absence of workflow carries a big cost in terms of competiveness and financial performance. The conference debated these issues in great depth, illustrating through many examples the benefits that can be achieved through consolidation and process definition. Many left the event feeling inspired to highlight the opportunities that can be realized; IACCM will be supporting and monitoring progress.

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I think this discussion needs to be divided into various pieces. Does the procurement require negotiation? Is the procurement more or less standard? If you are using standardized forms from the counterparty, is the procurement pursuant to a previously negotiated Master Agreement? If so, do procurement personnel know which documents are required by the Master Agreement. If the agreement is not standard, does the organization have a negotiating team (comprised of recurring members of various departments) or are the negotiators determined by the department making the acquisition. In my experience, I have found the latter approach to result in the least favorable outcomes. In my judgment, the best results are achieved by using a very limited number of people as negotiators and assigning them to carry out that role consistently and across corporate divisions. Like any other activity, the more you negotiate, the better you function as a negotiator. The assigned negotiators will require support from various departments, including the department requesting the resource acquisition, risk management, accounting, tax and procurement to assure that all interested parties and their interests are represented. That is not to say that all of these parties will be present at the actual negotiation. As I explain in my webinar, negotiation is best carried out by as few people as necessary in order to reduce any unnecessary divergence of comments during the actual negotiation.

Thanks for raising this Tim – salient as always. This problem is endemic to the companies I work with. Unfortunately, workflow management systems swamp users with alerts, notifications, and reminders to the extent that they are ignored. The systems are implemented to support work processes that are designed by 3rd parties with a little experience of how processes work in the real world. The companies in my industry (Oil & Gas) don’t need more workflow processes, they need fewer and better ones, i.e. processes that focus on setting the range of acceptable actions for human beings, and not on automating the humans out of the picture…